Auditing Supply Chains: The Process

Auditing Supply Chains: The Process

Supply chain auditing is an integral part of any organization’s compliance process, as it helps to ensure that the company’s suppliers are held accountable for their roles in producing and distributing goods. 

Audits are conducted both onsite and remotely, and typically involve assessing compliance with various standard industry regulations as well as verifying that supplier performance is up to the set standards. 

In this blog post, we will go over the basics of supply chain auditing, including what it entails and why it’s a necessary component of any compliance program. We will also discuss some key audit processes and tips for successful audits. 

So if you want to learn more about how to ensure that your supply chain is running smoothly and compliantly, then read on!

The Supply Chain Auditing Process

There are a few critical steps in the supply chain auditing process:

1. Define the Scope of the Audit 

Scope includes the depth and areas that will be evaluated as part of the audit. This includes identifying which parts of the supply chain will be up for auditing and what specific metrics will be used to collect and analyze data.

2. Data Collection 

This step involves gathering information from all relevant parties in the supply chain, including suppliers, manufacturers, logistics providers, and retailers.

Auditors can spend substantial time reviewing performances, interviewing personnel, running background checks and investigating causes for issues identified.

3. Data Analysis

Once all of the data has been collected, it needs to be analyzed to identify any potential risks or issues within the supply chain. Definitions of risks and the criteria used for developing KPIs will be objective and agreed upon by all.

4. Findings and Corrective Actions

Auditors can present their findings and as they point out issues and elaborate on the causes, they can also suggest improvements.

Based on the findings of the audit, possible ‘corrective actions’ may need to be taken to improve the overall efficiency and effectiveness of the supply chain.

5. Implementation

The final step is to implement any corrective actions that were identified during the audit process. This may include changes to supplier contracts, alterations to manufacturing processes, or new procedures for logistics and distribution.

What is Audited in Supply Chains?

Supply Chain Auditing Process

When a company audits its supply chain, they are looking at various factors to ensure that its standards are being met. This can include an evaluation of the supplier, the manufacturing process, and the transportation of the finished product. The goal is to identify any areas where improvements can be made in order to create a more efficient and effective supply chain.

There are 3 key aspects that are audited in every supply chain:

1- Suppliers: A company will want to audit their supplier to ensure that they are providing quality products that meet the company’s standards. They will also want to make sure that the supplier is adhering to any legal or ethical standards that have been set forth.

2- Manufacturing: A company will want to audit manufacturing processes to ensure peak quality and cost-efficiency. They will also want to make sure that there is minimal waste and that all safety standards are being met.

3- Transportation: A company will want to audit the transportation of the finished product to ensure that it is being shipped in a timely and efficient manner. They will also want to make sure that the product arrives at its destination in good condition.

However, all these are assessed considering the one most critical thing for any business – risks.

Risk Management in Supply Chain Audits

When auditing supply chains, it is important to consider the risks involved in each stage of the process. Risk management can help identify potential problems and prevent them from occurring.

As part of the 7 things you should include in your supply chain audits, here are some common things auditors usually look for: 

  • Legal risks
  • Geopolitical risks
  • SLA performance issues
  • Quality risks
  • Cybersecurity risks
  • Reputational risks
  • Inventory and demand management

There could be several scenarios posing these risks, including:

  • Inaccurate or incomplete data
  • Inefficient processes
  • Lack of communication between supply chain partners
  • Poor quality control
  • Unreliable suppliers

Each of these situations poses risks that can have a significant impact on the overall performance of the supply chain. Therefore, it is important to identify and implement risk management strategies, such as:

  • Documentation and data review: This strategy involves reviewing all documentation related to the supply chain, such as purchase orders, invoices, and shipping documents. This can help identify errors or discrepancies that could lead to problems further down the line.
  • Process mapping: This strategy involves creating a detailed map of the entire supply chain process. This can help identify areas where there may be bottlenecks or inefficiencies that could lead to delays or disruptions.
  • Supplier interviews: This strategy involves interviewing suppliers to get their input on the supply chain process. This can help identify any potential problems with supplier reliability or quality control.

Important KPIs Supply Chain Auditors Use

Supply chain auditors use several key performance indicators (KPIs) when assessing the effectiveness and efficiency of an organization’s operations. Some of these include:

  • On-time delivery rate
  • Inventory accuracy rate
  • Order fulfillment accuracy rate
  • Lead time
  • Carrier performance
  • Freight costs as a percentage of revenue
  • Stock-out rate
  • Supplier quality performance
  • Return on assets (ROA)
  • Total cost of ownership (TCO)

These are just a few of the KPIs that supply chain auditors use when assessing an organization’s operations. Here’s an overview of the 7 things auditors evaluate in a supply chain.

Want a Supply Chain Audit?

At Izba, we try to assess each business with respect to its niche and industry standards. Get in touch with us and we’d love to help you out with everything from preparing to conducting a supply chain audit.

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